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Challenges and Opportunities in Emerging Markets and Economies

Poster Session

Sunday, Jan. 3, 2021 7:00 AM - 6:00 PM (EST)

Monday, Jan. 4, 2021 7:00 AM - 6:00 PM (EST)

Tuesday, Jan. 5, 2021 7:00 AM - 3:00 PM (EST)

Hosted By: Society for the Study of Emerging Markets
  • Chair: Ali M. Kutan, Southern Illinois University-Edwardsville and Society for the Study of Emerging Markets

Weekday Seasonality of Chinese Stock Returns: Diametrically Opposite of That Seen Worldwide

Fahad Ali
Zhejiang University
Numan Ülkü
Charles University


We document that Chinese stocks’ Market, SMB and RMW factor returns exhibit early-in-the-week effects opposite-signed to those observed worldwide. Dominated by individual investors, Chinese stock market offers unique out-of-sample insight regarding the source of weekday seasonality, ascribed elsewhere to institutional investors’ trading pattern. High returns to the market and to small, speculative stocks early-in-the-week pose a refuter to the mood explanation for the classical (negative) Monday effect. A battery of tests suggests that the pattern in three factors are jointly associated with Chinese individual investors whose demand is tilted towards small, speculative stocks. Our findings point to a potential role of dominant investor type in driving weekday patterns and the RMW premium.

The Trinity Effect of Corporate-Political-Banking Relationship over Debt Structure: Evidence from India

Rishman Jot Kaur Chahal
Indian Institute of Technology
Wasim Ahmad
Indian Institute of Technology
N. R. Bhanumurthy
National Institute of Public Finance and Policy


Using a unique dataset on corporate-political connections based on the campaign contributions
to political parties in India for the period 2003-2016, we show that the corporate-political
connections positively explain the debt structure of firms. We further classify the political
connections in two categories with weak (strong) based on the campaign contributions to single
(both or multiple) parties, we find that the impact of strong corporate-political connections is
higher than the weak ones. The study also considers both static (persisting) and dynamic
political connections (to control for Type I Error: correct exclusion) based on the operations of
firms. We find that the persistent attributes when it is combined with the strong corporatepolitical connections show a higher impact on long-term debt of firms than the dynamic
connections. The long-term connections pay a higher dividend than the frequently changed
relations. However, the introduction of government-owned banks to the corporate-political
relationship highlights the possible inefficiency in the government banks and weak regulatory
institutions in the country as we find that strong political connections alone do not explain the
debt structure of firms unless the relationship with banks is taken into consideration. This
indicates that the banks may use it as their discretion to award the long-term debt to firms. We
also find that the lower interest payment obligation is enjoyed by strongly politically connected
firms which also have a good relationship with banks. The study also includes a sectoral
analysis and highlights the sector-specific developments. Overall, the results of this study are
robust to several dynamic panel data specifications.

Democracy as a Driver of Post-Communist Economic Development

Jan Fidrmuc
Brunel University


This study revisits the potential effect of democracy on economic development in a broad sample
of countries, and also separately in a subsample of post-communist countries. The results are
reassuring: democracy has a robustly positive impact on economic growth, and also on key factors
of economic growth – investment in physical and human capital. Moreover, the sustained level of
democracy, embodied in accumulated democratic capital, especially robustly correlates with
economic development. When comparing the relative roles of democracy and economic freedom,
democracy takes primacy in the global sample while both democracy and economic freedom seems
to play important roles in the subsample of post-communist countries.

Trade-Related Effects of Brexit. Implications for Central and Eastern Europe

Jan Hagemejer
University of Warsaw and CASE Center for Social and Economic Research
Maria Dunin-Wąsowicz
University of Warsaw
Jan J. Michałek
University of Warsaw
Jacek Szyszka
University of Warsaw


We use a global computable general equilibrium model to analyze several scenarios of Brexit. While the shape of the Brexit trade agreement is no longer uncertain after the conclusion of the trade deal on December 24th 2020, the future evolution of the UK’s trade liberalization versus third countries will have an impact on the outcome of Brexit. We focus on the effects on the Central and Eastern European New Member States where the UK is one of the main trading partners. The shocks imposed on the CGE model include modifications of both tariff and non-tariff barriers. While the former are based on actual tariff data, the latter are estimated using an econometric model for both merchandise trade and services. Our results show that the macroeconomic effects of Brexit are mild, even in the case of a significant reorientation of UK’s trade towards third countries and more pronounced effects materialize in a longer-run. However, there are some sectors that may experience somewhat significant drops in output, in particular the food sector and some other manufacturing export-oriented sectors, such as electronics.

Distressed Acquisitions Evidence from European Emerging Markets

Ichiro Iwasaki
Hitotsubashi University
Evžen Kočenda
Charles University, CESifo, and IOS-Regensburg
Yoshisada Shida
Economic Research Institute for Northeast Asia


We analyze factors impacting the acquisition of distressed firms in European emerging
markets during and after the global financial crisis (2007–2017) by assessing 22,608 distressed
acquisitions in 17 economies. We provide detailed evidence of the impact of financial ratios,
legal form, ownership structure, firm size, and firm age, emphasizing the role of institutions.
We show that institutions specifically related to quality and enforcement of insolvency law
have lower probability of distressed acquisitions. The extent of corruption control and progress
in banking reforms are also strong factors. The qualitative impact of institutions is similar, but
its size is larger in less-advanced countries when compared to economically stronger ones. We
take it as indirect evidence of the diminishing marginal returns of institutions with respect to
their quality. The effect of institutions increased after the financial crisis, but as the economic
situation improved, their impact declined.

The Effect of Internal Control Regulation on Reporting Quality in China

Jieqiong Hu
Harbin Institute of Technology
Yin-Che Weng
National Dong Hwa University
Fusheng Wang
Harbin Institute of Technology


Abstract: China has introduced a version (CSOX) of the US’s Sarbanes-Oxley Act (SOX) aimed at enhancing the internal controls of listed companies. Previous studies provide solid evidence of SOX’s effectiveness, but the question of whether similar measures are suitable in emerging markets remains unresolved. This study fills the research gap by investigating whether CSOX has effectively improved reporting quality in China’s relatively weak institutional environment. Using a novel, modified difference-in-difference approach, this study finds that, even with weak enforcement, discretionary accruals are lower under CSOX’s mandatory disclosure regime, though we find some evidence of earnings manipulation.

The Environmental Impact of Industry-Level Greenfield FDI: Evidence from 30 Chinese Provinces and 32 Economic Sectors

Wei Li
Tianjin University
Nadia Doytch
City University of New York


In this study we examine the impact of industry-province level greenfield foreign
direct investment (GFDI) on industry-province level of CO2 emissions for 32 economic sectors
situated in 30 Chinese provinces. Our goal is two-fold: to test not only whether inward GFDI
contributes to pollution, but also whether outward GFDI contributes to its decrease. To that goal
we have built a 2003-2016 data set that merges data on CO2 emissions from China Emission
Accounts and Datasets, industry-province economic indicators from China Industry Statistical
Yearbook, and proprietary data on inward and outward GFDI by industry, province and source
region from FDI Markets (Financial Times). We construct a model at the industry-province
level, which controls for: an Environmental Kuznets Curve- non-linear relationship between
income and pollution; capital assets relative to employment, environmental regulation, foreign
capital assets and foreign employment ratios for both, inward and outward GFDI. We control for
effects of industry, provinces, source regions of GFDI and time. We also disentangle the
significance of energy-intensive vs. non-energy-intensive industries and GFDI from developed
vs. developing regions. We employ both, static, and dynamic methods and reveal a plethora of
environmental effects the overall lesson from which confirms our hypothesis about inward GFDI
contributing to CO2 emissions and refutes our hypothesis that outward GFDI reduces CO2

Understanding Client Involvement and Vendor Growth in Information Technology Outsourcing Relationships

Phuong V. Nguyen
Vietnam National University-Ho Chi Minh City
Hien Thi Ngoc Huynh
Vietnam National University-Ho Chi Minh City
Hoa Doan Xuan Trieu
Vietnam National University-Ho Chi Minh City
Dien Van Tran
Vietnam National University-Ho Chi Minh City
Thao Thi Uyen Dang
Vietnam National University-Ho Chi Minh City


The scholarly literature has explored benefits of client involvement in improving client vendor relationships. However, relevant research in information technology (IT) outsourcing is scarce. To fulfill the gap, this paper explores dyadic outsourcing client-vendor relationships to integrate essential determinants into the research model. This paper analyzes a data survey from 120 managers belonging to the IT services sector in Vietnam. The Partial Least Squares-Structural Equation Modeling (PLS-SEM) analysis discloses that client involvement has various effects on crucial determinants, which enhance innovative performance and stimulate vendor growth. Implications based on specific phenomenon of Vietnamese IT sector are also proposed.

Asymmetric Effect of Argentina’s Fiscal Deficit on the Real Exchange Rate

Jorge M. Oviedo
National University of Cordoba
Ivan F. Julio
Boston University


It is well documented that fiscal deficits generate deterioration in real exchange rates. However, the
composition of the fiscal deficit, whether generated by an increase in expenditure or a tax reduction, may
generate asymmetric effects. In this article, the differential impact on the real exchange rate, generated by
an increase in public consumption expenditure, public investment and tax reduction, is analyzed and
quantified. To this end, we develop a dynamic stochastic general equilibrium model (DSGE) with
government and external sector, which we calibrate and simulate for Argentina. We find that the fiscal
deficit originated in tax reduction can improve the real exchange rate, whereas the one generated by any
increase in expenditure deteriorates it. Furthermore, the deterioration in the real exchange rate is greater
when public expenditure is destined to public consumption than when it is used for public investment.
Quantifying these different effects on the exchange rate within a dynamic stochastic general equilibrium
framework is an important exercise of political economy for highly dollarized emerging economies that
exhibit higher inflation pass-through.

Bank Concentration on Firm Leverage and Profitability

José Julián Cao-Alvira
City University of New York
Alexander Núñez-Torres
City University of New York


We analyze the differences in regional bank concentration in an emerging economy, namely
Colombia, and quantify its effects on firm leverage and performance. We find strong and
consistent evidence that firm leverage decreases with regional bank concentration, and that the
marginal effect declines for the most concentrated regions. We also show that firm performance
decreases significantly with a region’s concentration. Evidence may suggest that these decreases
in performance are due to elevated financing costs in these concentrated regions.

Financial Crises in Retrospect of Turkish Economy: Evidence from a Probit Model 1970-2018

Sami Fethi
Eastern Mediterranean University
Neslihan Kahyalar
De Montfort University


This study empirically investigates the determinants of financial crisis which occurred in the
Turkish economy in 1994, the late 1997 and 2007 respectively. A probit model is conducted by the
main tool to identify the leading indicators of financial crisis using a sample of annual data covering
the period 1970-2018. The evidence found in this paper indicates that terms of trade shock (TT), per
capita income growth (CAPG) and M2 Reserve (M2R) are the best indicators, which determine
financial crisis in the Turkish economy. Besides, real exchange misalignment (RER), current
account balance (CABR) and annual reserve money to GDP (ARM) were not found significant in
favour of the financial crisis. Based on our estimated results, (i) Turkish financial system may need
a new law and regulation framework to improve the strength of the Turkish financial system. (ii) In
the Turkish economy, human sources and facilities such as electronic communication have to be
used efficiently. (iii) Macroeconomic stability and political soundness are the keys to the solution of
the dilemma

The Transmission of Global Monetary and Credit Shocks on Exchange Market Pressure in Emerging Market and Developing Economies

Helena Glebocki Keefe
Fairfield University


There has been a great focus recently on the transmission of shocks from advanced economies to emerging and developing countries. This research considers how shocks in global monetary and credit conditions impact the exchange market pressure index (EMPI) in forty emerging markets and developing economies. It assesses the impact based on the degree of trade openness and capital account openness in these economies using a panel vector autoregression (PVAR) analysis from 1998 to 2016. Countries that are more open in trade and finance are less susceptible to shocks in global monetary liquidity and global credit conditions. Moreover, there is evidence that the response to these shocks changes in the post-2009 era, with the size and strength of the response becoming more significant in both highly open and less open economies. This indicates a greater transmission of these shocks onto exchange market conditions in emerging markets and developing economies in the period after the Global Financial Crisis.

Stock Market Uncertainty and Uncovered Equity Parity Deviation: Evidence from Asia

JiYong Jung
Sogang University
Kuk Mo Jung
Sogang University


Recently, many empirical studies document that a country's stock market performance relative to the US and its local currency units per US dollar tend to move in opposite direction over the short run, also known as the uncovered equity parity (UEP) condition. However, those studies have applied only to advanced economies to date. This study conducted the same tests to a sample of 18 Asian economies. To one's surprise, we found that the UEP condition reverses its sign among Asian currencies. In addition, measures of stock market uncertainty are suggested as a potential driving force behind this UEP reversal for Asian economies. This surprising result suggests that there might be other mechanisms behind the joint dynamics of equity and currency returns than the portfolio rebalancing caused by incomplete foreign exchange risk hedging. The reasoning is that Asian foreign exchange (FX) markets are even more subject to incomplete foreign exchange risk hedging. Thus, one should expect even stronger UEP evidence from Asian currency markets if the portfolio rebalancing mechanism was the only force at play.

Macroeconomic Effects of Inflation Targeting in Emerging Market Economies

Martin Stojanovikj
Integrated Business Faculty-Skopje
Goran Petrevski
Ss. Cyril and Methodius University


This paper examines the macroeconomic effects of inflation targeting in 44 emerging market economies (EMEs) during 1970-2017. We estimate a dynamic panel data model, which takes into account the endogeneity of inflation targeting regime and controls for a variety of factors affecting macroeconomic performance in EMEs. The main findings from our empirical investigation are as follows: inflation targeting is associated with lower average inflation, though its favourable effects, as compared to the alternative monetary strategies, are modest; we provide firm evidence against the proposition that inflation targeting lowers inflation volatility; there is no evidence whatsoever that inflation targeting has favorable effects on output growth; we find that inflation targeting does not affect output growth volatility.
JEL Classifications
  • F3 - International Finance
  • G1 - Asset Markets and Pricing